I work at an accounting firm. Everyone knows the stereotypical accountant. Accountants are introverted and devoid of humor, they drive practical cars, wear frumpy clothes and enjoy geeky hobbies like stamp collecting. They’re rule followers.
The people I work with range far and wide from that stereotype. Ashley is a CPA, but her first career choice was drama and voice performance. Her undergraduate work in those areas was fulfilling, but as a career it wasn’t that lucrative. That’s why she’s an accountant today. She went back to school for accounting, but continues to be involved in theater groups and performance.
A couple weeks ago, Ashley came to me with an interesting fraud story. One of her friends from college had been preparing for rehearsals of a new Broadway musical, Rebecca. There had been a series of setbacks for the musical’s funding and a plot emerged that rivals the plot of the musical itself.
Originally, producers of the musical announced a two-week delay of rehearsals due to the death of an investor. Paul Abrams died of malaria after a visit to Africa, but it looked like his estate would honor his $4.5 million commitment.
When that fell through, efforts were made to find new investors. An angel investor was located and an updated timeline for rehearsals was announced. Ultimately, the new investor would receive a malicious email, “filled with lies and innuendo” from an anonymous third party. The investor withdrew. The producers announced an indefinite delay of Rebecca.
Now it’s clear that all these difficulties can be traced to one man.
A former stockbroker was arrested last month for an elaborate fraud perpetrated on the producers of Rebecca. Mark Hotton allegedly created phantom investors, including fake names, lives, companies, emails and even the fake death of Paul Abrams, one of the phantom investors. He received commissions of approximately $60,000 for the fake commitments.
When it was time to produce the $4.5 million investment, the fake investor, Paul Abrams, “died.” The scheming didn’t end there, however. Mark Hotton allegedly secured a $1.1 million dollar loan for the producers of Rebecca, and he was paid a fee for doing so. The loan didn’t exist.
That story was interesting enough. But there’s more to the story.
Simultaneously with the fraud on Rebecca, Mark Hotton, his wife, and some business associates were operating other schemes.
There was an alleged scheme to con a real estate company into making advance payments of $750,000 to Hotton for helping the company secure a large loan. The financing deal involved the same fictitious investors presented to Rebecca.
There was also an accounts receivable factoring scheme. Hotton and his associates allegedly created fake invoices showing money owed to electrical companies they operated. They allegedly sold the fake debt to a factoring company for millions.
While all that was happening, Hotton was already under investigation by Financial Industry Regulatory Authority for allegations of professional misconduct as a stockbroker. He was charged last week with diverting at least $8.5 million from his brokerage customers since 2006.
According to the complaint, Mark Hotton sometimes convinced investors to purchase investments that didn’t exist, and sometimes there were legitimate business investments but the funds were diverted to pay prior investors. Essentially, he used a Ponzi scheme when necessary, but often just simply stole the funds from his investors.
One of Broadway’s biggest scandals has resulted in a story that just gets more and more interesting. Hotton’s fictitious investors doomed the musical, Rebecca. It will have far-reaching effects on Broadway. Investors’ and producers’ confidence is shaken.
Over 100 jobs were lost as a result of Rebecca’s cancellation. Actors, production crew, costuming, choreographers, stage crew, make-up crew, set designers and other staff all lost income and missed other opportunities while they planned on working for the musical. The theater suffered loss of income as well.
One law enforcement source called Mr. Hotton a “predatory financial sociopath.” Eventually his frauds will be quantified in the millions. The emotional toll and future implications for all his actions are beyond comprehension.
Gina Bliss, CPA, CFE, is a senior manager at EFP Rotenberg LLP, Certified Public Accountants and Business Consultants, who specializes in internal audit, fraud audit and forensic accounting. She may be reached at (585) 295-0536 or by email at [email protected]